Ethereum Dencun: Transactions Fees Drop by More Than 90%

After the release of the Ethereum Dencun upgrade, the cost of transactions in L2 rollups has been reduced by more than 90%. This is an incredible achievement that opens up huge opportunities for the growing Ethereum ecosystem.

As the most popular network with the ability to implement smart contracts, Ethereum faces one of the biggest challenges of all blockchains - scalability. As the number of users and activity grows, the cost of gas on the network increases significantly, making widespread use difficult.

The Dencun upgrade that came live on March 13, 2024, is the most significant upgrade since the stage of The Merge, when Ethereum moved to the Proof Of Stake consensus mechanism. Dencun is specifically designed to solve the scalability problem of the Ethereum network.

To find out what the Dencun upgrade is, what benefits it brings, and how it is implemented, read on!

What is the Ethereum upgrade - Dencun?

Ethereum's development plan consists of the following phases:

• The Merge: this phase was aimed at transitioning Ethereum from the Proof Of Work consensus mechanism to Proof Of Stake. It took place in September 2022.
• The Surge: aimed at achieving a throughput of 100,000 transactions per second in the Ethereum ecosystem. The transition to this stage took place along with the Dencun upgrade on March 13, 2024. We will look at it in more detail below.
• The Scourge: focuses on reducing the risks associated with MEVs, staking pools, and organizations to solve centralization problems in Ethereum.
• The Verge: focuses on making block verification easier and more efficient.
• The Purge: aims to reduce the requirements for running network nodes and make the protocol more convenient and simple.
• The Splurge: includes all the other upgrades that are important for Ethereum's growth.

Dencun is an upgrade of the Ethereum network that activates proto-dank sharding (which is described in EIP-4844) by injecting temporary binary large objects of data. This will allow L2 rollups to put data into Ethereum much cheaper, resulting in lower transaction costs in L2.

Dencun focuses primarily on improving the scalability of the network and signifies the transition to the "The Surge" phase of the Ethereum roadmap. "The Surge" prioritizes improving scalability. The Ethereum community is taking a rollup-oriented approach that puts L2 rollups as the primary means to securely support more users and transactions with available fees, while keeping the network decentralized.

The key concept is that the introduction of proto-dunk sharding in the Dencun upgrade makes fees in L2 rollups lower than ever before - about 10 times. Future upgrades are planned to develop Ethereum in this direction with the goal of reaching a throughput of more than 100,000 transactions per second.

The advantages of Ethereum Dencun upgrade and the problems it solves

• Increased scalability: The Dencun update increases the throughput of the Ethereum network. This is achieved by implementing proto-dank sharding, which provides additional temporary storage space for binary large objects of data to be used by L2 rollups. Their implementation significantly increases throughput.

• Commission reduction: Proto-danksharding, which is implemented in the Ethereum Dencun upgrade, allows to significantly reduce fees in L2 rollups by reducing the cost of data storage in L1. This applies to optimistic and zk rollups, which will allow them to compete with global payment majors in the future. After the Ethereum Dencun upgrade, transaction fees in L2 rollups such as Arbitrum One and Optimizm have decreased by over 90% and are less than $0.01$!

• Data Storage Improvement: The Ethereum Dencun upgrade also implements EIP-1153. It represents the ability to store data only during the entire transaction, which allows for data storage optimization.

• New categories of applications: Lower transaction costs are important for everyone. Without them, many applications simply didn't make sense to implement due to the high cost of interacting with them. Now that they can be significantly reduced it makes it possible to develop more complex and scalable applications. The Dencun update is driving innovation in the Ethereum ecosystem.

• New users: High fees have been a barrier to onboarding new users to many protocols. This is the case for many sectors such as DeFi or NFT. Reducing fees allows all transactions to be done much cheaper and in larger numbers, which definitely will attract users for whom this was a barrier. For example, it will make the DeFi sector more convenient and accessible, attracting new participants and increasing mass adoption.

• Keeping decentralization and security: By solving Ethereum's scalability problem through L2 rollups, it allows to significantly increase Ethereum's throughput and reduce transaction costs while keeping the security and decentralization of nodes. All this is achieved through proto-danksharding which is implemented in the Dencun upgrade of Ethereum.

  
  

Proto-Danksharding

Proto-danksharding, described in EIP-4844, presents an innovative method to improve on the process of storing data on Ethereum. The idea was proposed by researchers Protolambda and Dankrad Feist to solve the problem of expensive storage for rollup transactions data.

Previously, Ethereum L2 rollups used calldata to commit transactions, which represented more than 90% of the total cost of rollups. The main disadvantage of calldata is that this data is stored in Ethereum forever and is available at the execution and EVM level, which explains the high cost of this type of storage.

Proto-danksharding, introduced as part of the Dencun upgrade, has been a key element in increasing scalability and reducing fees, making the Ethereum ecosystem more accessible and efficient for all its participants.

Proto-danksharding, changes this model by presenting binary large objects of data that can be sent and attached to blocks. The data in these large binary objects are not accessible on the EVM and are stored at the consensus level. They are automatically deleted after a fixed period of time which at the time of writing is 4096 epochs or about 18 days. This data is needed in rollups only to check its validity or to appeal it, and this period is more than enough for this goal. This type of data storage is much cheaper in itself, and due to the fact that it is a temporary storage - there are no increasing hardware requirements to the network nodes. Thus, rollups can send their data much cheaper and ultimately reduce the cost of transactions for end users.

The Ethereum Dencun upgrade with proto-dunksharding is an intermediate step to move into full dunksharding, which will provide even more space to reduce transaction costs even further, and lays down the basic concepts to realize this. As mentioned above, it introduces blob transactions to handle large amounts of data and reduce fees. The Dencun upgrade with proto-danksharding lays the foundation for a future where transaction data and its processing will be separated.

The nearest crypto market horizons

The Ethereum Dencun upgrade, represents a significant event for the entire ecosystem, opening the door for wider use and progression of decentralized applications. However, in addition to this, market attention is also turning to the upcoming Bitcoin halving, which is expected in April 2024. Halving is an event that reduces the block reward to miners by half, which means reducing its emission and decreasing supply. This time, the block reward will drop from 6.25 BTC to 3.125 BTC.

Bitcoin halving and Ethereum Dencun upgrade create positive expectations for the entire cryptocurrency market in the long term. However, due to this, we may see increased price volatility in the market.  Therefore, in order to make investment decisions, it is important to consider not only these factors, but also many other variables that can affect the price dynamics of cryptocurrencies.

What's next?

The Ethereum Dencun upgrade with the implementation of proto-danksharding solves the problems of scalability and reducing fees. It represents a significant step forward to provide a more accessible, efficient, and scalable space for decentralized applications in the Ethereum ecosystem.

However, although significant improvements have been made, the Dencun upgrade is only a step in Ethereum's long road to growth. There are even more ambitious goals and technological innovations ahead, including full danksharding and increased network efficiency. The development vector is now focused on improving scalability and reducing fees, while keeping the other advantages of the network, such as decentralization and security.

So while the Dencun upgrade opens up new opportunities and prospects for the Ethereum network, it continues to move forward in pursuit of higher performance.

Shortly, we are in for some more significant events in the crypto industry, such as the bitcoin halving and the possible approval of spot Etherum ETFs. How this will affect in reality - only time will show.

Share your opinion in the comments, which part of Ethereum Dencun users consider the most significant?